UPDATE 3-GM waited on Ion recall despite awareness of fatal crashes

* Senate, House say criminal investigation could complicate their probes

* Faulty ignition switches linked to 12 deaths

* Hit to GM stock “overdone” -analyst

By Ben Klayman, Richard Cowan and Paul Lienert

DETROIT/WASHINGTON, March 12 (Reuters) - General Motors Co waited more than two weeks to expand a major recall to include the Saturn Ion and other compact cars, even though its engineers were aware of four fatalities in crashes involving the model, GM said in filings published on Wednesday.

In an amended submission to the U.S. National Highway Traffic Safety Administration, GM also said it had identified an issue with the ignition switch, the central failing in the recall of more than 1.6 million cars, in 2001 preproduction testing on the Ion.

That is three years earlier than the company previously had reported. Before Wednesday, GM had said that it became aware of the problem in 2004, in the Chevrolet Cobalt.

GM says the switch has been connected with at least 34 crashes and is linked to at least 12 deaths. Congress, regulators and GM itself are investigating why it took the company so long to recall the cars.

GM issued its first recall of more than 600,000 Chevrolet Cobalts on Feb 7 of this year. On Feb 25 it expanded the recall by nearly 750,000 vehicles to include the Ion and several other compact models that shared the faulty ignition switch that could cause the engine to shut down and disable the airbags, sometimes at high speed.

Asked why GM had waited before expanding the recall, a spokesman on Wednesday told Reuters the company had decided to conduct a “more in-depth analysis” of vehicles listed in previous communications with car dealers. That led to the second round of the recall.

A GM document released earlier on Wednesday said that even after the vehicles in its ignition-switch recall are repaired, owners should avoid weighing down their key rings with anything more than the key and fob.

Also on Wednesday, U.S. Senator Claire McCaskill said a Senate subcommittee plans to hold a hearing in early April on GM’s recall.

“We have to get to the bottom of this,” said McCaskill, a Missouri Democrat. “We need to find out who dropped ball and put millions of Americans at risk.”

The failure is believed to be caused when weight on the ignition key, road conditions or some other jarring event causes the ignition switch to move out of the “run” position, turning off the engine and most of the car’s electrical components mid-drive, with sometimes catastrophic results.

GM said in an earlier filing Wednesday that it will offer loaner cars in some cases to unhappy owners affected by the recall.

The company also said it is not buying back affected vehicles if owners ask for that, but is offering a $500 cash allowance, through April 30, to buy a 2013, 2014 or 2015 model-year vehicle.

On Tuesday, a source said federal prosecutors have opened a probe of GM, examining whether the company is criminally liable for failing to properly disclose problems with some of its vehicles that led to the recall.

PARALLEL PROBES

The New York office of the Federal Bureau of Investigation is involved in the probe, a source familiar with the matter told Reuters on Wednesday.

The federal probe by the FBI and the U.S. attorney in Manhattan adds to a growing list of U.S. authorities examining the recall.

McCaskill said the Senate Commerce Committee’s consumer protection subcommittee will examine the responses of GM and the federal traffic safety administration, NHTSA to the discovery of faulty ignition switches. She told Reuters that the congressional probe is “more challenging” now that the Justice Department also has opened its own investigation.

“While we would like to get as much information as possible and have General Motors as witnesses,” McCaskill said her panel’s review is “really about how NHTSA has handled this and what are the challenges that NHTSA faces in being an effective cop on the beat.”

She said she has concerns about whether NHTSA had insufficient expertise and also about a lack of transparency at the agency. She did not know which GM executives would be called to testify.

Safety advocates have criticized NHTSA for failing to catch the GM issue and failing to demand a recall despite tracking the problems at different points over the past decade.

Kelley Blue Book senior analyst Karl Brauer said NHTSA’s lack of action suggests the agency’s own review process may be ineffective despite changes made after the high-profile Ford-Firestone tire recall in 2000.

However, NHTSA’s chief said U.S. auto-safety regulators did not force GM to recall the cars sooner because the connection between defective ignition switches and failing airbags was not clear.

“If we had that information, if GM had provided us with timely information, we would have been able to take a different course with this,” David Friedman, acting administrator for NHTSA, told Bloomberg on Wednesday in Washington.

Transportation Secretary Anthony Foxx told reporters in Washington on Wednesday that he had a “high level of confidence” in NHTSA, “but we’ll continue watching as facts unfold and see where we are.”

Foxx said his department is having a “dialogue” with the U.S. Department of Justice about the GM recall. “They’re looking at the same information we’re looking at. They will make that determination.”

The U.S. House Energy and Commerce Committee also has ordered GM and NHTSA to turn over information about the automaker’s ignition-switch problems. A House committee aide said on Wednesday that while the Justice probe may complicate what information can be received, the committee expects NHTSA and GM to comply with information requests.

GM has declined to comment on news of the criminal probe, but has said it is cooperating on all the various probes.

“We are fully cooperating with NHTSA and will do so with the Congress, too,” GM spokesman Greg Martin said in an email on Wednesday. “We welcome the opportunity to help both parties have a full understanding of the facts.”

GM faces a fine of up to $35 million from NHTSA, and several analysts have estimated the recall could cost the company $70 million to $280 million.

The automaker has not disclosed what the recall will cost. Analysts agreed that the biggest costs could come from lawsuits likely to result from the recall and probe.

Barclays analyst Brian Johnson said in a research note that Tuesday’s 5 percent stock decline was “overdone” as the $3.2 billion hit to the company’s market cap was likely well above any potential settlements with the U.S. Department of Justice, state attorneys general and plaintiffs’ lawyers.

However, Johnson added that it was unclear what might make the stock rise in coming months as continued media headlines were likely to weigh heavily on GM shares.

GM shares fell 0.9 percent to close at $34.86 on the New York Stock Exchange on Wednesday.